Name: So you want to run a restaurant: Crunching the numbers
Uploaded: 2024-06-25T16:17:51.417Z
Duration: 454.19
Description: Ready to make some profit? In our latest series, we're equipping budding restaurant entrepreneurs with essential knowledge to kickstart their journey. Once you've nailed down your concept and designed a profitable menu, it's crucial to understand how to keep the doors open! In episode three, expert Ryan Gromfin explores the key factors that ensure a healthy and profitable venture.

SYWRR- 3 Crunching the numbers_V3.mp4

SYWRR- 3 Crunching the numbers_V3.vtt

english

{{00:00:00}}
So you've got a great idea and now
it's time to make sure that this new

{{00:00:03}}
restaurant of yours, this dream of
yours is going to actually make money.

{{00:00:19}}
So first, when you're launching a
new restaurant, it's a business.

{{00:00:23}}
We can't forget that this is a business.

{{00:00:25}}
It is designed to be profitable.

{{00:00:27}}
I'll go so far as to say.

{{00:00:29}}
You have a responsibility
to be profitable.

{{00:00:32}}
And I want you to take that seriously.

{{00:00:37}}
So for an average restaurant,
your profit margins, I'm going

{{00:00:40}}
to start with about a 10%.

{{00:00:42}}
That's probably a bit on the low side,
but it's a starting place for me.

{{00:00:45}}
Then depending on your volume, your
efficiencies, not so much your industry.

{{00:00:52}}
Those will go up and down a little bit.

{{00:00:54}}
I think a very healthy
restaurant should be profiting

{{00:00:57}}
in about the 16 percent range.

{{00:00:59}}
Okay.

{{00:00:59}}
I think an unbelievably successful
restaurant is maybe an 18 pushing 20.

{{00:01:05}}
But I often tell clients, if you're
making more than 20 percent in profit,

{{00:01:09}}
bottom line,  I think that you are
doing your business a disservice.

{{00:01:14}}
It will come back to bite you.

{{00:01:16}}
You might not be investing
in new technology.

{{00:01:18}}
You might not be investing
in your team members.

{{00:01:20}}
You might not be investing
in your facilities enough.

{{00:01:22}}
So I've come across restaurants that have
higher than 20 percent profit margins.

{{00:01:27}}
And I highly encourage those
owners to throw some of those

{{00:01:31}}
dollars back into the business.

{{00:01:33}}
Now, again, when we get lower volume,
if we're maybe under a million

{{00:01:37}}
dollars a year, you're going to
see profits a lot lower than that.

{{00:01:41}}
Now you should be paying yourself a
salary, but you may not even see a profit

{{00:01:45}}
beyond your salary at under a million.

{{00:01:47}}
What I often tell people is under
a million, pay yourself a salary.

{{00:01:50}}
You might not see a profit about
a million to a million and a half.

{{00:01:53}}
You should be looking
at five, five to 10%.

{{00:01:56}}
And then when you start getting into
a million and a half and up, again,

{{00:01:59}}
these are very general statements.

{{00:02:00}}
You should start to see that
healthy 10, 12, 15 percent margin.

{{00:02:08}}
So when we're digging deeper now
into our numbers, I really divide

{{00:02:12}}
them up into two major categories,
controllable and non controllable.

{{00:02:16}}
On the controllable side, we have
a number that's called prime cost.

{{00:02:19}}
Prime cost is going to be
your total cost of goods sold.

{{00:02:21}}
So the purchases.

{{00:02:23}}
The purchases that you use toward the
production of your product, your beer,

{{00:02:26}}
wine, liquor, food, and then your labor.

{{00:02:28}}
When you combine those two
together, you should get no

{{00:02:31}}
more than 60 percent of sales.

{{00:02:34}}
If you're in the 65 percent
range, you might be doing

{{00:02:37}}
okay, but you're struggling.

{{00:02:38}}
You start getting above
65 percent on that.

{{00:02:41}}
That's your margin.

{{00:02:42}}
It's gone.

{{00:02:43}}
The rest of the numbers are going
to be things like rent, utilities,

{{00:02:46}}
credit card processing, right?

{{00:02:48}}
Stuff like that.

{{00:02:48}}
It's, it's not as controllable.

{{00:02:50}}
So.

{{00:02:50}}
What's going to be really important is
you control the controllables, focus

{{00:02:54}}
on your cost of goods sold, know the
formulas, know how to calculate those

{{00:02:57}}
numbers, know how much your plates
cost, focus on your labor cost, keep

{{00:03:02}}
that prime cost under 60 percent.

{{00:03:05}}
And the rest should work itself out.

{{00:03:11}}
One of the other factors that's going
to be crucially important to the

{{00:03:13}}
profitability of your restaurant is of
course your menu, it's what you sell.

{{00:03:17}}
There's a lot of factors that go into
designing a really strong, profitable menu

{{00:03:23}}
that I think might get overlooked a lot.

{{00:03:25}}
One of those is of course the, the
pricing of the items correctly.

{{00:03:30}}
We have to make sure that we are
pricing items in a place where

{{00:03:33}}
we are maximizing our profits.

{{00:03:34}}
We're making as much money as possible.

{{00:03:36}}
We're charging as much as possible.

{{00:03:39}}
But that we're also not so high that
we've priced ourselves out of the market.

{{00:03:43}}
So you have to know who your
consumer is and what you could

{{00:03:46}}
charge for those products.

{{00:03:48}}
The other factor here
is what I call design.

{{00:03:51}}
And when I say design, yes, the
physical appearance, the graphics,

{{00:03:54}}
the, the design is very important.

{{00:03:56}}
But when I'm saying design, I'm talking
about the back end of your menu.

{{00:04:00}}
I'm talking about where have
you incorporated things or

{{00:04:03}}
have you incorporated things
that allow your guests to.

{{00:04:06}}
To spend more money if they want to.

{{00:04:08}}
We're leaving so much money on the
table by not simply asking our guests.

{{00:04:13}}
Would you like another glass of wine?

{{00:04:14}}
Would you like a second margarita?

{{00:04:16}}
Let's stop calling that upselling.

{{00:04:18}}
Let's call that enhancing
the guest experience.

{{00:04:20}}
Cause that's really what it is.

{{00:04:22}}
Have you put together a menu that
in its totality is a profitable

{{00:04:27}}
menu, not just each individual item.

{{00:04:29}}
You may be a tavern selling hamburgers
and pizza and chicken wings.

{{00:04:33}}
And stuff like that, you should
throw a steak on your menu.

{{00:04:36}}
There's no reason not to
have a 40 steak on your menu.

{{00:04:40}}
Will every customer order it?

{{00:04:41}}
No.

{{00:04:41}}
Will most of your customers order it?

{{00:04:43}}
No, but you will get people who come
to dinner and say, you know what?

{{00:04:46}}
I want a steak and I will,
I'm going to spend 40 on it.

{{00:04:50}}
And I don't mind even if
your burgers are 16, 17.

{{00:04:53}}
So that's what I mean by
the design of your menu.

{{00:05:00}}
I think the biggest mistake that new
restaurant owners make when it comes

{{00:05:03}}
to profitability is underestimating how
much labor it's going to take and how

{{00:05:08}}
expensive all of the other things are.

{{00:05:11}}
We look at the big stuff.

{{00:05:12}}
We look at rent.

{{00:05:14}}
We look at, you know, we do our
research on the cost of our products

{{00:05:17}}
and we get all that figured out.

{{00:05:18}}
But it usually takes a lot more labor
than you think at the beginning.

{{00:05:23}}
So I, again, I highly stress
going through, creating a budget,

{{00:05:26}}
asking yourself in order to
execute this shift, Who do I need?

{{00:05:30}}
What positions do I need them in?

{{00:05:31}}
How much does each of those people cost?

{{00:05:33}}
Plus the additional fees.

{{00:05:34}}
You have to cover some fees on
behalf of your team members, which is

{{00:05:37}}
usually in the 15 to 20 percent range.

{{00:05:40}}
If your team member makes 20 an
hour, they're actually costing

{{00:05:42}}
you closer, like 24 an hour.

{{00:05:45}}
So we've got to factor that in, but
then also all the other stuff, it just

{{00:05:49}}
adds up your linen service, all of your
utilities, your credit card processing,

{{00:05:54}}
which again, is why it's so important
to keep that prime cost under 60%.

{{00:05:59}}
Control what you can control.

{{00:06:00}}
Cause all that other stuff
you just can't control.

{{00:06:06}}
I hear a lot of people say, don't
get into the restaurant business.

{{00:06:10}}
It, the failure rate is massive.

{{00:06:11}}
You're never going to make any money.

{{00:06:13}}
And that to me is just
absolute,  just a fallacy.

{{00:06:17}}
There is money to be made
in the restaurant business.

{{00:06:19}}
There is absolutely profits to be
made in the restaurant business.

{{00:06:23}}
I love the restaurant business because
almost no other business that you

{{00:06:27}}
could open up, should you, could you
hit maximum profitability on day one?

{{00:06:32}}
If you open up.

{{00:06:33}}
an accounting firm, if you open up
a plumbing business, it's going to

{{00:06:36}}
take years to develop a clientele.

{{00:06:38}}
You should, and you could, I should
say you could, and you should open

{{00:06:43}}
up a restaurant and your busiest
day should be the day you open.

{{00:06:46}}
You should be maximum revenue,
maximum profitability on day one.

{{00:06:51}}
Now that's not easy to do.

{{00:06:53}}
You've got to put some work
into making that happen.

{{00:06:56}}
But I love the business.

{{00:06:57}}
You have instant cashflow every day.

{{00:06:59}}
You don't carry a large
amount of inventory.

{{00:07:02}}
You don't have to buy massive
amounts of product and technology and

{{00:07:06}}
infrastructure to then ramp up a business.

{{00:07:09}}
It's a wonderful business, but I ask
that you treat it like a business.

{{00:07:13}}
This is not a hobby.

{{00:07:15}}
This is not something that
we make really good barbecue.

{{00:07:19}}
So we're going to go open up a restaurant.

{{00:07:20}}
This is a commitment.

{{00:07:22}}
I want you to go in with
your eyes wide open.

{{00:07:24}}
I want you to go in with a big
smile on your face and have fun,

{{00:07:26}}
but treat it like a business.

So you've got a great idea and now
it's time to make sure that this new

restaurant of yours, this dream of
yours is going to actually make money.

So first, when you're launching a
new restaurant, it's a business.

You have a responsibility
to be profitable.

So for an average restaurant,
your profit margins, I'm going

That's probably a bit on the low side,
but it's a starting place for me.

Then depending on your volume, your
efficiencies, not so much your industry.

I think a very healthy
restaurant should be profiting

I think an unbelievably successful
restaurant is maybe an 18 pushing 20.

But I often tell clients, if you're
making more than 20 percent in profit,

bottom line,  I think that you are
doing your business a disservice.

You might not be investing
in new technology.

You might not be investing
in your team members.

You might not be investing
in your facilities enough.

So I've come across restaurants that have
higher than 20 percent profit margins.

And I highly encourage those
owners to throw some of those

Now, again, when we get lower volume,
if we're maybe under a million

dollars a year, you're going to
see profits a lot lower than that.

Now you should be paying yourself a
salary, but you may not even see a profit

What I often tell people is under
a million, pay yourself a salary.

You might not see a profit about
a million to a million and a half.

You should be looking
at five, five to 10%.

And then when you start getting into
a million and a half and up, again,

You should start to see that
healthy 10, 12, 15 percent margin.

So when we're digging deeper now
into our numbers, I really divide

them up into two major categories,
controllable and non controllable.

On the controllable side, we have
a number that's called prime cost.

Prime cost is going to be
your total cost of goods sold.

The purchases that you use toward the
production of your product, your beer,

When you combine those two
together, you should get no

If you're in the 65 percent
range, you might be doing

You start getting above
65 percent on that.

The rest of the numbers are going
to be things like rent, utilities,

What's going to be really important is
you control the controllables, focus

on your cost of goods sold, know the
formulas, know how to calculate those

numbers, know how much your plates
cost, focus on your labor cost, keep

One of the other factors that's going
to be crucially important to the

profitability of your restaurant is of
course your menu, it's what you sell.

There's a lot of factors that go into
designing a really strong, profitable menu

One of those is of course the, the
pricing of the items correctly.

We have to make sure that we are
pricing items in a place where

But that we're also not so high that
we've priced ourselves out of the market.

So you have to know who your
consumer is and what you could

The other factor here
is what I call design.

And when I say design, yes, the
physical appearance, the graphics,

But when I'm saying design, I'm talking
about the back end of your menu.

I'm talking about where have
you incorporated things or

have you incorporated things
that allow your guests to.

We're leaving so much money on the
table by not simply asking our guests.

Let's call that enhancing
the guest experience.

Have you put together a menu that
in its totality is a profitable

You may be a tavern selling hamburgers
and pizza and chicken wings.

And stuff like that, you should
throw a steak on your menu.

There's no reason not to
have a 40 steak on your menu.

No, but you will get people who come
to dinner and say, you know what?

I want a steak and I will,
I'm going to spend 40 on it.

And I don't mind even if
your burgers are 16, 17.

So that's what I mean by
the design of your menu.

I think the biggest mistake that new
restaurant owners make when it comes

to profitability is underestimating how
much labor it's going to take and how

So you want to run a restaurant

Best Practice

Ready to make some profit? 

In our latest series, we're equipping budding restaurant entrepreneurs with essential knowledge to kickstart their journey.
 
Once you've nailed down your concept and designed a profitable menu, it's crucial to understand how to keep the doors open!

In episode three, expert Ryan Gromfin explores the key factors that ensure a healthy and profitable venture.

Restaurants

Restaurant Management

Financials

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